* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 11.03.2014
Pronounced on: 31.03.2014
+ ITA 483/2012, C.M. No. 14602/2012 (for exemption) &
20240/2013 (for amendment of appeal)
NITI WADHAWAN .....Appellant
Versus
DCIT, CENTRAL CIRCLE-10 .....Respondent
+ ITA 251/2013
THE COMMISSIONER OF INCOME TAX XV .....Appellant
Versus
M/S. NITI WADHAWAN .....Respondent
Through: Ms. Prem Lata Bansal, Sr. Advocate with
Mr. Ram Avtar Bansal and Mr. Naman Nayar,
Advocates, for Ms. Niti Wadhawan.
Mr. Sanjeev Sabharwal, Sr. Standing Counsel with
Mr. Ruchir Bhatia, Jr. Standing Counsel, for
Revenue.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.V. EASWAR
MR. JUSTICE S. RAVINDRA BHAT
%
1. The following questions of law arise in the present cross
appeals by the assessee and the Revenue against a common order of
the Income Appellate Tribunal ("ITAT") dated 20.04.2012 in IT (SS) A.
ITA 483/12 & ITA 251/13 Page 1
No 242/Del/2006 and IT (SS) A. No. 8/Del/2007. The following
questions of law arise for consideration:
(a) Did the Tribunal fall into error in not holding that the
addition made to the assessee's income was in a
proceeding without jurisdiction on account of no
satisfaction (and consequent notice) under Section
158BD of the Income Tax Act (ITA 483/2012);
(b) Did the Tribunal fall into error in deleting a part of the
amount added back by the AO as the assessee's
undisclosed income on account of consideration
received for property sold (ITA 251/2013).
2. On 27.05.2003, a search and seizure action under Section 132
of the Income Tax Act, 1961, ("the Act") was carried out in the case of
Mr. Y.C. Wadhawan, the assessee's husband. As a result of that
search, carried out on Mr. Y.C. Wadhawan (a separate assessee), the
evidence and material were seized in the form of a draft agreement
to sell and the carbon copy of a receipt. Shri Wadhwan was
proprietor of M/s R.R. Enterprises (India). The business premises of
M/s R.R. Enterprises were covered under Section 133A of the Act.
Notice under Section 158BC of the Income Tax Act was issued. These
assessees were served by affixture on two separate dates for filing a
return of income for the Block Period within 15 days. A "nil" return
of income was filed on 15.03.05. Notice under Sections 142(1) and
143(2) were issued. These remained unanswered. Even the final
ITA 483/12 & ITA 251/13 Page 2
show cause notice dated 12.05.05 remained unanswered. Therefore,
the AO completed the assessment on the basis of the material
available on record.
3. The appellant is the wife of Shri Y.C. Wadhawan, proprietor of
the said R.R. Enterprises and M/s R.R. Enterprize (India). These
concerns manufacture a range of fire-fighting equipment for ocean
going ships such as pull tugs, floats, survey ships, passenger ships etc.
They also cater for salvage group for ships and special items such as
tobacco smoke filter, smoke vessels, etc. The AO completed
assessment, and brought to tax an amount in excess of ` 49 lakhs in
the hands of the appellant. She appealed to the CIT (A), contending
that a search warrant had been issued in respect of her assets,
limited to the locker in her name and that the search operations in
respect of that yielded nothing. Consequently, the
appellant/asseseee argued that the search and assessment were
without jurisdiction and the AO's order had to be set aside. It was
argued that the warrant and panchnama were not issued in her
name and consequently the entire assessment was without
jurisdiction. The CIT (Appeals) was of the opinion that since the
assessee had not urged the question of lack of jurisdiction on account
of want of notice before the AO, that issue could not be raised in
appeal. He was also of the opinion that the material, used by the AO
to saddle the appellant with a tax demand, was obtained on the basis
of a search of her husband. Since the material in the form of
ITA 483/12 & ITA 251/13 Page 3
documents was also backed by her statements, the assessment of
income in her hands was legal and valid.
4. The assessee appealed to the ITAT, contending that the order
under Section 158BC together with Section 144 was unsustainable
and a nullity in the absence of neither a search warrant nor a
panchnama ever having been drawn in her name. Given that these
prerequisites for a valid assessment under Section 158BC had not
been met, the proceedings were sought to be quashed. It was
contended that the findings of the lower authorities that the notice
under Section 158BC did not suffer from any illegality was erroneous.
The submission on the merits of the addition was that the AO and CIT
(Appeals) had drawn wrong inferences in holding that the balance
sale consideration was `49,25,000/-, allegedly received in cash. It
may be mentioned that the AO had directed addition of the entire
amount. The reasoning of the AO had been affirmed but the CIT
(Appeals) directed assessment of only half of the amount in the
appellant's hands.
5. The appellant contends in the grounds of appeal before us
and in the arguments through her senior counsel, Ms. Prem Lata
Bansal, that the Tribunal fell into error in overlooking that the subject
assessments were without jurisdiction and nullity as no search was
conducted as to trigger the power to make a block assessment.
Elaborating on this, it was submitted that the only basis for
conferring jurisdiction upon the assessee, relied by the Revenue, was
ITA 483/12 & ITA 251/13 Page 4
the search of her locker. Admittedly, no material was found, no
panchnama was drawn nor was she issued with any subsequent
notice. In these circumstances, adding further amounts to her
assessed income on the basis of material seized from another
individual assessee, who happened to be her husband, was illegal.
Learned counsel also highlighted that the recourse made to Rule 29
of the Tribunal Rules to look into the pachnama and statements was
unwarranted in the circumstances of the case. Learned counsel
emphasized that the materials in the form of documents evidencing
alleged undervaluation of the sale of immovable property, leading to
alleged undisclosed income, was in fact recovered during the course
of the search pursuant to the warrant issued in the case of Sh. Y.C.
Wadhawan. That material could not be used to saddle her with tax
liability established when no notice under Section 158BD was issued
to her by the AO charged with her assessment.
6. Learned counsel argued that if at all the material, if deemed
proper, could have been used to add to the husband's income under
Section 64. Once that course was not adopted, the Revenue could
not utilize that material to fasten additional tax liability on the
appellant in this case. Learned counsel relied upon the judgment
reported as C. Ramaiah Reddy v. ACIT, 339 ITR 210 (Kar) for the
submission that there were no valid materials for the appellant's
assessment and that if the Revenue sought to utilize the materials
seized in the course of search of Sh. Y.C. Wadhawan, it was
ITA 483/12 & ITA 251/13 Page 5
incumbent upon the AO to issue separate notice after recording due
satisfaction. Learned counsel again highlighted that no notice under
Section 158BD was issued by the AO of Sh. Y.C. Wadhawan nor was
any satisfaction recorded in that regard. In these circumstances,
argued learned counsel, the entire assessments were vitiated.
Learned counsel for the assessee also relied upon the judgments
reported as Commissioner of Income Tax. v. Ms. Pushpa Rani, 289 ITR
328 and V. Ramaiah v. CIT, 356 ITR 646.
7. Learned counsel for the Revenue, Sh. Sanjeev Sabharwal,
resisted the appellant's arguments and urged that the submission
with respect to lack of jurisdiction was never urged during the
assessment proceedings. It was argued that in the present case not
only did the assessee sign on the warrants, but she even made
admissions in the course of statements recorded during the search of
her husband's residence, pointedly with reference to the documents
seized at that stage which were ultimately used to assess her.
Learned counsel submitted that having regard to the presumptive
nature of Section 132(4) of the Act, the assessee could not get away
from the proceedings and claim that the additions made in her hand
were invalid or illegal. It was further submitted that the documents
revealed that the property was sold for a total consideration of
`57,25,000/- whereas the valuation was shown to be `8 lakhs. In
these circumstances, the addition made in the assessee's hand was
justified and proper.
ITA 483/12 & ITA 251/13 Page 6
8. For a proper appreciation of the merits, it would be
appropriate to reproduce Sections 158BC and 158 BD of the Income
Tax Act. They read as follows:
"158BC. Procedure for block assessment.
Where any search has been conducted under section 132 or
books of account, other documents or assets are
requisitioned under section 132A, in the case of any person,
then
(a) the assessing officer shall
(i) in respect of search initiated or books of account or other
documents or any assets requisitioned after the 30th day of
June, 1995, but before the 1-1-1997, serve a notice to such
person requiring him to furnish within such time not being
less than fifteen days;
(ii) in respect of search initiated or books of account or
other documents or any assets requisitioned on or after the
1-1-1997, serve a notice to such person requiring him to
furnish within such time not being less than fifteen days but
not more than forty-five days,
as may be specified in the notice, a return in the prescribed
form and verified in the same manner as a return under
clause (i) of sub-section (1) of section 142, setting forth his
total income including the undisclosed income for the block
period:
Provided that no notice under section 148 is required to be
issued for the purpose of proceeding under this Chapter:
ITA 483/12 & ITA 251/13 Page 7
Provided further that a person who has furnished a return
under this clause shall not be entitled to file a revised
return;
(b) the assessing officer shall proceed to determine the
undisclosed income of the block period in the manner laid
down in section 158BB and the provisions of section 142,
sub-sections (2) and (3) of section 143 and section 144 shall,
so far as may be, apply;
(c) the assessing officer, on determination of the
undisclosed income of the block period in accordance with
this Chapter, shall pass an order of assessment and
determine the tax payable by him on the basis of such
assessment;
(d) the assets seized under section 132 or requisitioned
under section 132A shall be retained to the extent
necessary and the provisions of section 132B shall apply
subject to such modifications as may be necessary and the
references to 'regular assessment' or reassessment' in
section 132B shall be construed as references to 'block
assessment'.
158BD. Undisclosed income of any other person.
Where the assessing officer is satisfied that any undisclosed
income belongs to any person, other than the person with
respect to whom search was made under section 132 or
whose books of account or other documents or any assets
were requisitioned under section 132A, then, the books of
account, other documents or assets seized or requisitioned
shall be handed over to the assessing officer having
jurisdiction over such other person and that assessing
officer shall proceed against such other person and the
provisions of this Chapter shall apply accordingly."
ITA 483/12 & ITA 251/13 Page 8
9. The main thrust of the argument advanced by the assessee has
been that in the absence of an independent satisfaction note in respect
of her case, and notice separately, after the search under Section
158BD, the AO could not have validly proceeded and completed the
assessment, by using materials not found pursuant to the search of her
locker. Facially, the argument is powerful and attractive. However,
this ignores two vital aspects, which, in the opinion of this Court,
distinguish the facts of the present case from all those cited on behalf
of the assessee/appellant. The first is that a separate search warrant
was issued in respect of the assessee. This cannot be disputed. No
doubt, that was in respect of the locker, and not as regards the search
conducted on the husband. However, this warrant brought the assessee
within the ambit of Section 158BC. The other aspect is that the
assessee was present when her husband's premises were searched, and
had even signed the panchnama, which recorded the seizure of the
documents which were ultimately used by the AO in her case. Neither
is there is any escape from this aspect.
10. Crucially, the Court here notices that one of the clear
distinguishing factors between the facts of this case and the judgments
relied on behalf of the appellant is that a separate warrant was issued
in respect of the appellant. V. Ramaiah (supra) was not a case where a
separate warrant had been issued in respect of the assessee. The
judgment in Pushpa Rani (supra) was a one of its kind order, premised
on the understanding that the issuance of warrants in respect of
jewellery did not justify an addition in respect of other items. This
ITA 483/12 & ITA 251/13 Page 9
Court is of opinion that the observations in that case cannot be read as
determinative of the law on that subject nor can such distinction
sought to be drawn to nullify assessments where materials in respect
of one assessee are yielded in the search of another, and in respect of
both, separate warrants are issued. Likewise, the decision in
Commissioner of Income Tax v. Dawn View Farms Pvt. Ltd., 2009
(178) Taxman 15, the question was validity of the Section 158BD
notice.
11. In Friends Overseas (P) Ltd v. CIT, 2004 (136) TAXMAN 94
(Delhi), this Court was called upon to decide a question similar to the
present one. The Court pertinently held that:
"Chapter XIV-B lays down special procedure for
assessment of cases where a search is conducted under
section 132 of the Act or books of account, other
documents, etc., are requisitioned under section 132A of
the Act after 30-5-1995. Section 158B is a definition
section and gives definitions of the expressions "Block
Period" and "undisclosed income"; section 158BA makes
a provision with regard to assessment of undisclosed
income as a result of search initiated or requisition made
after 30-6-1995; section 158BB relates to computation of
undisclosed income of the block period and section
158BC lays down the procedure for block assessment and
section 158BD provides for assessment of undisclosed
income of any other person. In the present case, we are
not concerned with the other provisions contained in the
chapter.
10. Section 158BA opens with a non obstante clause and,
therefore, enacts a provision of overriding nature so as to
prevail over any other provisions of the Act. It provides
that where after 30-6-1995, a search is initiated under
ITA 483/12 & ITA 251/13 Page 10
section 132 or books of account, other documents or any
asset etc., are requisitioned under section 132A of the Act
in the case of any person, the assessing officer shall
proceed to assess the undisclosed income in accordance
with the provisions of Chapter XIV-B. Section 158BC, with
which we are concerned in the instant case, lays down
the procedure, which the assessing officer is required to
follow, where any search has been conducted under
section 132 or requisition of the documents etc.,
mentioned therein is made under section 132A.
Therefore, the prerequisite for initiation of proceedings
for assessment under the Chapter is a search under
section 132 or requisition of books of account, etc., and
not the quantification of the "undisclosed income".
Section 158BD is an enabling provision for bringing to tax
any undisclosed income belonging to any person, other
than the person with respect to whom search was
conducted under section 132.
11. In the present case, while rejecting the argument that
the provisions of section 158BC of the Act were not
applicable, the Tribunal has observed that it was never
the case of the assessed that the document in question
(Annexure A-11) was not recovered from its business
premises or that it did not belong to it or that the entries
regarding expenditure aggregating to Rs.14,88,754 were
not made by its employee; vide letter dated 7-11-1996
the assessed had categorically accepted that the entries
in question were made by its accountant, though for
some other purpose; again on 15-11-1996 the assessed
reiterated the same explanation and an affidavit of the
accountant was filed stating that the figures mentioned
on the document were imaginary figures; this
explanation was again retracted and one Babulal Goenka
was produced to own the said entries, which, according
to Goenka were again typed by assessee's accountant.
ITA 483/12 & ITA 251/13 Page 11
The Tribunal found that the assessee had knowingly and
admittedly given different explanations in respect of the
same document and, therefore, its yet another
explanation that the subject transactions, though typed
by its accountant, were made by the said Goenka lacked
credence. It is pertinent to note that the assessed had not
only owned up the document but had also explained the
cheque transactions reflected in the lower portion of the
same very document. In view of the factual scenario
projected above, we unhesitatingly affirm the view taken
by the Tribunal that section 158BC had been correctly
invoked in the case of the assessed company and that
section 158BD of the Act had no application in the
matter.
12. For the foregoing reasons, we are of the view that
this appeal by the assessed is wholly misconceived, as no
question of law of general public importance arises or
that the issue raised is such that it poses difficulty in
answering it or that the issue is capable of an alternative
view. As noted supra, the view of the Tribunal is based on
clear provisions of law, causing no ambiguity. Thus, no
substantial question of law, which is the sine qua non for
the exercise of power under section 260A of the Act arises
from the impugned order."
12. In the present case, the panchnama drawn pursuant to the
warrant issued in respect of Shri. Y. C. Wadhawan on 27.05.2003
concededly contains the signature of the present appellant, his wife.
The warrant in respect of her locker was issued subsequently. She was
informed of the search and signed the panchnama on 29.05.2003.
Therefore, she did not conform to the description of one "other than
the person with respect to whom search was made under section 132",
ITA 483/12 & ITA 251/13 Page 12
for which a separate notice is required to be served, as is urged by her.
Rather, the Court notes that a search was conducted in respect of her
as well. The search conducted previously in respect of her husband no
doubt formed the material which ultimately resulted in the addition
and the impugned assessment. Such addition, however, cannot be
considered unauthorized for not fulfilling the conditions prescribed
under Section 158BD. On the peculiar facts of this case, we cannot
consider this case as one in which no incriminating material was
found pursuant to the search under Section 132; the search of the
locker in the assessee's case is closely linked to the search in the
husband's case where incriminating materials pertaining to the
assessee were found. The close proximity of both the searches and the
continuous course of events in the case rule out the acceptance of the
argument that no incriminating material was found in the search of the
locker and, therefore, the additions were invalid.
13. As to the merits, this Court is of the opinion that the findings of
the lower authorities are based on a proper appreciation of the facts.
The documents, in the form of the (unsigned) agreement to sell do
disclose that the real and undisclosed consideration for sale of the
property was far in excess of what was in fact reported in the
assessment. The inferences drawn by the AO were consequently
justified. However, the CIT (A) was of the opinion that since only a
portion of the property had been gifted by the assessee's husband to
her, the entire addition could not be made in her hands. This finding
ITA 483/12 & ITA 251/13 Page 13
was affirmed by the ITAT. This being purely a question of fact, this
Court does not propose to interfere with it.
14. The assessee sought leave to rely on additional grounds. We
notice that various aspects were agitated before the ITAT, which
proceeded with the appeal on all the questions urged. As regards
jurisdiction too, the appellant had advanced submissions before the
ITAT. However, the question of lack of jurisdiction of the AO had
never been agitated in the first instance at the time of assessment. This
too, in the opinion of the Court, is an additional factor negating the
complaint regarding lack of jurisdiction.
15. For the foregoing reasons, both questions are answered in the
negative the first question against the assessee and the second
question against the revenue. Both appeals have to fail and are,
therefore, dismissed along with pending applications without any
order as to costs.
S. RAVINDRA BHAT
(JUDGE)
R.V. EASWAR
(JUDGE)
MARCH 31, 2014
ITA 483/12 & ITA 251/13 Page 14
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